Chinese Stocks

The Financial Crisis Of 2016 Rolls On – China, Oil, Copper And Junk Bonds All Continue To Crash

Buy Sell - Public DomainNever before have we seen a year start like this.  On Monday, Chinese stocks crashed once again.  The Shanghai Composite Index plummeted another 5.29 percent, and this comes on the heels of two historic single day crashes last week.  All of this chaos over in China is one of the factors that continues to push commodity prices even lower.  Today the price of copper fell another 2.40 percent to $1.97, and the price of oil continued to implode.  At one point the price of U.S. oil plunged all the way down to $30.99 a barrel before rebounding just a little bit.  As I write this article, oil is down a total of 6.12 percent for the day and is currently sitting at $31.13.  U.S. stocks were mixed on Monday, but it is important to note that the Russell 2000 did officially enter bear market territory.  This is yet another confirmation of what I was talking about yesterday.  And junk bonds continue to plummet.  As I write this, JNK is down to 33.42.  All of these numbers are huge red flags that are screaming that big trouble is ahead.  Unfortunately, the mainstream media continues to insist that there is absolutely nothing to be concerned about.

A little over a year ago, I wrote an article that explained that anyone that believed that low oil prices were good for the economy was “crazy“.  At the time, many people really didn’t understand what I was trying to communicate, but now it is becoming exceedingly clear.  On Monday, one veteran oil and gas analyst told CNBC that “half of U.S. shale oil producers could go bankrupt” over the next couple of years…

Half of U.S. shale oil producers could go bankrupt before the crude market reaches equilibrium, Fadel Gheit, said Monday.

The senior oil and gas analyst at Oppenheimer & Co. said the “new normal oil price” could be 50 to 100 percent above current levels. He ultimately sees crude prices stabilizing near $60, but it could be more than two years before that happens.

By then it will be too late for many marginal U.S. drillers, who must drill into and break up shale rock to release oil and gas through a process called hydraulic fracturing. Fracking is significantly more expensive than extracting oil from conventional wells.

Since the last recession, the energy industry has been the number one producer of good paying jobs in this country.

Now that those firms are starting to drop like flies, what is that going to mean for employment in America?

Just today, a huge coal company filed for bankruptcy, and so did a U.S. unit of commodity trading giant Glencore.  The following comes from Zero Hedge…

While the biggest bankruptcy story of the day is this morning’s chapter 11 filing by Arch Coal, one which would trim $4.5 billion in debt from its balance sheet while handing over the bulk of the post-reorg company to its first-lien holders as part of the proposed debt-for-equity exchange, the reality is that the Arch default was widely anticipated by the market.

However, another far less noted and perhaps far more significant bankruptcy filing was that of Sherwin Alumina Co., a U.S. unit of commodity trading giant Glencore PLC, whose troubles have been extensively detailed on these pages. The stated reason for this far more troubling chapter 11 was “challenging market conditions” which is one way to describe an industry in which just one remaining U.S. smelter will be left in operation after Alcoa shut down its Warrick Country smelting ops last week.

A spokesman for Glencore, which owns the entire business, said the commodities producer and trader is “supportive of the restructuring process undertaken by Sherwin and is hopeful of an outcome that will allow for the continued operation of the Sherwin facility.”

We desperately need prices for oil and other commodities to rebound significantly.  Unfortunately, that does appear to be likely to happen any time soon.  In fact, according to CNN we could soon see the price of oil fall quite a bit more…

The strengthening U.S. dollar could send oil plunging to $20 per barrel.

That’s the view of analysts at Morgan Stanley. In a report published Monday, they say a 5% increase in the value of the dollar against a basket of currencies could push oil down by between 10% and 25% — which would mean prices falling by as much as $8 per barrel.

If prices for oil and other commodities keep falling, what is going to happen?

Well, Gina Martin Adams of Wells Fargo Securities says that what is happening right now reminds her of the correction of 1998…

Recent market volatility has dredged up memories of previous times of turmoil, most notably the 2008 crisis. But Gina Martin Adams of Wells Fargo Securities has been reminded of another, less dramatic correction year — 1998.

Adams posits that the current economic environment is suffering from themes that also played out in 1998, including falling oil prices, a rising U.S. dollar and troubles in emerging markets. Consequently, stocks may see a similar move to the 1998 correction, which saw a 20 percent drop for stocks over six weeks.

To me, it is much more serious than that.  Just before U.S. stocks crashed horribly in 2008, we saw Chinese stocks crash, the price of oil crashed, commodity prices crashed, and junk bonds crashed really hard.

All of those things are happening again, and yet most of the “experts” continue to refuse to see the warning signs.

In fact, the mainstream media is full of articles that are telling people not to panic while the financial markets crumble all around them…

There’s no need to make big moves in response to the recent volatility. “Regular folks should take on a long-term view and avoid trying to anticipate short-term market movements,” says Stephen Horan, the managing director of credentialing at CFA Institute. “There is almost no evidence to suggest that professionals can do it effectively and a plethora of evidence suggesting individuals do it poorly.”

They want “regular folks” to keep holding on to their investments as the “smart money” dumps their stocks at a staggering pace.

A little more than six months ago, I predicted that “our problems will only be just beginning as we enter 2016”, and that is turning out to be dead on correct.

The financial crisis that began during the second half of last year is greatly accelerating, and yet most of the population continues to be in denial even though the average stock price has already fallen by more than 20 percent.

Hopefully it will not take another 20 percent decline before people begin to wake up.

BLACK MONDAY: The First Time EVER The Dow Has Dropped By More Than 500 Points On Two Consecutive Days

New York City Empire State Building - Public DomainOn Monday, the Dow Jones Industrial Average plummeted 588 points. It was the 8th worst single day stock market crash in U.S. history, and it was the first time that the Dow has ever fallen by more than 500 points on two consecutive days. But the amazing thing is that the Dow actually performed better than almost every other major global stock market on Monday.  In the U.S., the S&P 500 and the Nasdaq both did worse than the Dow. In Europe, almost every major index performed significantly worse than the Dow.  Over in Asia, Japanese stocks were down 895 points, and Chinese stocks experienced the biggest decline of all (a whopping 8.46 percent). On June 25th, I was not kidding around when I issued a “red alert” for the last six months of 2015. I had never issued a formal alert for any other period of time, and I specifically stated that “a major financial collapse is imminent“. But you know what? As the weeks and months roll along, things will eventually be even worse than what any of the experts (including myself) have been projecting. The global financial system is now unraveling, and you better pack a lunch because this is going to be one very long horror show.

Our world has not seen a day quite like Monday in a very, very long time. Let’s start our discussion where the carnage began…

Asian Markets

For weeks, the Chinese government has been taking unprecedented steps to try to stop Chinese stocks from crashing, but nothing has worked. As most Americans slept on Sunday night, the markets in China absolutely imploded…

As Europe and North America slept on Sunday night, Chinese markets went through the floor — the Shanghai Composite index of stocks fell by 8.49%, the biggest single-day collapse since 2007.

It wasn’t alone. Hong Kong’s Hang Seng fell 5.17%, and Japan’s Nikkei fell 4.61%. Stocks in Taiwan, the Philippines, Singapore, and Thailand also tumbled.

Things would have been even worse in China if trading had not been stopped in most stocks. Trading was suspended for an astounding 2,200 stocks once they hit their 10 percent decline limits.

Overall, the Shanghai Composite Index is now down close to 40 percent from the peak of the market, and the truth is that Chinese stocks are still massively overvalued when compared to the rest of the world.

That means that they could very easily fall a lot farther.

European Markets

The selling momentum in Asia carried over into Europe once the European markets opened. On a percentage basis, all of the major indexes on the continent declined even more than the Dow did…

In Europe, the bloodbath from Friday continued unabated. The German Dax plunged 4.7%, the French CAC 40 5.4%, UK’s FTSE 100 dropped 4.7%. Euro Stoxx 600, which covers the largest European companies, was down 5.3%.

But wait… Europe is where the omnipotent ECB and other central banks have imposed negative deposit rates. The ECB is engaged in a massive ‘whatever it takes” QE program to inflate stock markets. But it’s not working. Omnipotence stops functioning once people stop believing in it.

U.S. Markets

Even before U.S. markets opened on Monday morning, the New York Stock Exchange was already warning that trading would be halted if things got too far out hand, and it almost happened…

The thousands of companies listed by the New York Stock Exchange and Nasdaq Stock Market will pause for 15 minutes if the Standard & Poor’s 500 Index plunges 7 percent before 3:25 p.m. New York time. The benchmark got close earlier, falling as much as 5.3 percent.

There were other circuit breakers in place for later in the day if too much panic selling ensued, but fortunately none of those were triggered either. Here is more from Bloomberg…

Another circuit breaker kicks in if the S&P 500 extends its losses to 13 percent before 3:25 p.m. If the plunge reaches 20 percent at any point during today’s session, the entire stock market will shut for the rest of the day.

When the U.S. markets did open, the Dow plunged 1,089 points during the opening minutes of trading. If the Dow would have stayed at that level, it would have been the worst single day stock market crash in U.S. history by a wide margin.

Instead, by the end of the day it only turned out to be the 8th worst day ever.

And in case you are wondering, yes, investors are losing a staggering amount of money. According to MarketWatch, the total amount of money lost is now starting to approach 2 trillion dollars…

As of March 31, households and nonprofits held $24.1 trillion in stocks. That’s both directly, and through mutual funds, pension funds and the like. That also includes the holdings of U.S.-based hedge funds, though you’d have to think that most hedge funds are held by households.

Using the Dow Jones Total Stock Market index DWCF, -4.21% through midmorning trade, that number had dropped to $22.32 trillion.

In other words, a cool $1.8 trillion has been lost between now and the first quarter — and overwhelmingly, those losses occurred in the last few days.

Unfortunately, U.S. stock prices are still nowhere near where they should be. If they were to actually reflect economic reality, they would have to fall a lot, lot lower.

For example, there is usually a very strong correlation between commodity prices and the S&P 500, but in recent times we have seen a very large divergence take place. Just check out the chart in this article. At this point the S&P 500 would have to fall another 30 to 40 percent or commodities would have to rise 30 or 40 percent in order to close the gap. I think that the following bit of commentary sums up where we are quite nicely…

“Markets are afraid of further economic weakness in China, further pain in global commodity markets and uncertain about Fed and PBoC policy — what they will do and what the impact will be,” Societe Generale’s Kit Juckes wrote on Monday. “The divergence between global commodity prices and equities is not a new theme but the danger now is that they begin to re-correlate – as they did when the dotcom bubble burst in 2000 and what had previously been an emerging market crisis became a US recession.”

And commodities were absolutely hammered once again on Monday.

For instance, the price of U.S. oil actually fell below 38 dollars a barrel at one point.

What we are watching unfold is incredible.

Of course the mainstream media is bringing on lots of clueless experts that are talking about what a wonderful “buying opportunity” this is. Even though those of us that saw this coming have been giving a detailed play by play account of the unfolding crisis for months, the talking heads on television still seem as oblivious as ever.

What is happening right now just doesn’t seem to make any sense to the “experts” that most people listen to. I love this headline from an article that Business Insider posted on Monday: “None of the theories for the Black Monday market crash add up“. Yes, if you are willingly blind to the long-term economic and financial trends which are destroying us, I guess these market crashes wouldn’t make sense.

And if stocks go up tomorrow (which they probably should), all of those same “experts” will be proclaiming that the “correction” is over and that everything is now fine.

But don’t be fooled by that. Just because stocks go up on any particular day does not mean that everything is fine. We are in the midst of a financial meltdown that is truly global in scope. This is going to take time to fully play out, and there will be good days and there will be bad days.  The three largest single day increases for the Dow were right in the middle of the financial crisis of 2008. So one very good day for stocks is not going to change the long-term analysis one bit.

It isn’t complicated. Those that follow my writing regularly know that I have repeatedly explained how things were setting up in textbook fashion for another global financial crisis, and now one is unfolding right in front of our eyes.

At this point, everyone should be able to very clearly see what is happening, and yet most are still blind.

Why is that?

Crashing: Apple, Twitter, Oil, Commodities, Greek Stocks, Chinese Stocks

Crash - Public DomainThe month of August sure has started off with a bang.  Tech stocks are crashing, oil is crashing, industrial commodities are crashing, Greek stocks crashed the moment that the Greek stock market reopened for trading, and Chinese stocks continue to crash.  At this point we have not seen a broad crash of U.S. stocks yet, but it is important to note that the Dow is already down more than 700 points from the peak in May.  If it continues to slide like it has in recent days, it won’t be too long before we will officially reach “correction” territory.  Just a few days ago, I described August as a “pivotal month“, and so far that is indeed turning out to be the case.

A full-blown financial crisis has not erupted yet, but we are well on the way.  In this article, I want to look at a few of the “crashes” that are already happening…

Apple

This is more of a “correction” than a “crash”, but it is very noteworthy because it is happening to one of the most important U.S. stocks of all.  The price of Apple stock has already broken through the 200 day moving average, and at this point it is down nearly 11 percent from the peak…

Shares of Apple are down 10.9% from their highest point in a year — which places the stock squarely in what’s considered to be a correction. The unofficial definition of a correction is a 10% or greater drop from a recent high. Shares of Apple hit a 52-week (and all-time) high on $134.54 on April 28.

Twitter

If you want to see a real crash, just look at what is happening to Twitter.  The stock was down close to 6 percent on Monday, and overall it has fallen 58 percent since early last year.  The price of Twitter stock has never been lower than it is right now, and many investors are very apprehensive about what comes next…

Twitter shares hit a record low on Monday, closing down nearly 6% to $29.27.

That is 58% below their peak in January 2014.

Shares have fallen to their lowest point since the company went public in November 2014 weighed down by negative comments on growth from company executives that rattled investors. Its previous low was $30.50 in May 2014 as concerns over slowing user growth began to take a toll.

Of course there are tech companies that are in far worse shape than Twitter.  For example, just consider what is happening to Yelp.  Shares of Yelp recently plummeted 25 percent in a single day, and they are down about 70 percent over the past year.

Greece

The Greek government was quite eager to reopen their stock market this week.

Perhaps they should have waited longer.

On Monday, we witnessed the greatest stock bloodbath in Greek history.  The following comes from Reuters…

Greece’s stock market closed with heavy losses on Monday after a five-week shutdown brought on by fears that the country was about to be dumped from the euro zone.

Bank shares plummeted 30 percent before loss limits kicked in to stop investors selling any more. The main Athens stock index .ATG ended down 16.2 percent, recovering slightly after plunging nearly 23 percent at the open.

It was the worst daily performance since at least 1985 when modern records began, including a 15 percent fall when Wall Street crashed in 1987.

Puerto Rico

Things also continue to unravel for “America’s Greece”.  On Monday, a U.S. commonwealth territory defaulted on debt for the first time ever…

Puerto Rico’s Government Development Bank announced Monday that it was only able to make a partial payment on its Public Finance Corporation (PFC) debt service due over the weekend.

In response to the non-payment of the full service, Moody’s said it viewed the situation as a default.

“Due to the lack of appropriated funds for this fiscal year the entirety of the PFC payment was not made today (the first business day after the Saturday deadline),” GDB President Melba Acosta-Febo said in a statement. This was a decision that reflects the serious concerns about the Commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico to ensure the essential services they deserve are maintained.”

China

As I noted the other day, the Shanghai Composite Index declined 13.4 percent during the month of July.  It was the worst month for stocks in China since October 2009.

On Monday, Chinese stocks were down another 1.11 percent.  Since closing at 5,166.35 on June 12th, the Shanghai Composite Index has fallen precipitously.  As I write this, it is sitting at just 3622.86.

Oil

In the months prior to the financial crisis of 2008, the price of oil crashed hard.

Now it is happening again.

In July, the price of oil plunged 21 percent.  That was the worst monthly decline that we have seen since October 2008.

And on Monday, the oil crash continued.  The following comes from Business Insider…

On Monday in New York, West Texas Intermediate (WTI) crude fell more than 4% and slipped below $45 per barrel, a level it hasn’t touched since March.

Brent crude oil, the international benchmark that joined WTI in a bear market last week, dropped more than 4%, below $50 per barrel for the first time since January.

Commodities

In recent weeks, I have been writing over and over about industrial commodities.  This is yet another striking similarity to the last financial crisis.  In 2008, they started crashing before stocks did, and now it is happening again…

We see the Bloomberg Commodities index now at a 13-year low. Copper is down 28 percent for the year, tin is down 30 percent, and nickel is down 44 percent.

This is a giant red flag that indicates that we are plunging into a deflationary cycle.  When global economic activity slows down, so does demand for industrial commodities.  I don’t understand why more people can’t see this.

I have been warning that a deflationary downturn was coming for a very long time, and so have others.  For instance, just consider the following excerpt from a recent article by Nicole Foss…

Our consistent theme here at the Automatic Earth since its inception has been that we are facing a very powerful deflationary depression, following on from the bursting of an epic financial bubble. What we have witnessed in our three decades of expansion and inflation is nothing short of a monetary supernova, and that period has been the just culmination of a much larger upward trend going back many decades at least. We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history.

Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. We have built an incredibly complex economic system, but despite its robust appearance it is over-extended, brittle and fragile after decades of fueling its continued expansion by feeding on its own substance.

Things continue to line up in textbook fashion for a major financial crisis during the fall and winter.

I hope that you are prepared for what comes next.

11 Red Flag Events That Just Happened As We Enter The Pivotal Month Of August 2015

Red Flags - Public DomainAre you ready for what is coming in August?  All over America, economic, political and social tensions are building, and the next 30 days could turn out to be pivotal.  In July, we saw things start to turn.  As you will read about below, a major six year trendline for the S&P 500 was finally broken this month, Chinese stocks crashed, commodities crashed, and debt problems started erupting all over the planet.  I fully expect that this next month (August) will be a month of transition as we enter an extremely chaotic time in the fall and winter.  Things are unfolding in textbook fashion for another major global financial crisis in the months ahead, and yet most people refuse to see what is happening.  In their blind optimism, they want to believe that things will somehow be different this time.  Well, the coming months will definitely reveal who was right and who was wrong.  The following are 11 red flag events that just happened as we enter the pivotal month of August 2015…

#1 Puerto Rico is going to default on a 58 million dollar debt payment that is due on Saturday.  Even though this has serious implications for the U.S. financial system, Barack Obama has said that there will be no bailout for “America’s Greece”.

#2 As James Bailey has pointed out, the most important trendline for the S&P 500 has finally been broken after holding up for six years.  This is a critical technical signal that will likely motivate a significant number of investors to sell off their holdings in the weeks ahead.

#3 The IMF is indicating that it will not take part in the new Greek debt deal.  As a result, the whole thing may completely fall apart…

Leaked minutes of the fund’s latest board meeting, which took place on Wednesday, showed staff “cannot reach agreement at this stage” on whether to take part in the new €86bn (£60bn) bailout for Greece. The document said there were doubts over the capacity of the Athens Government to implement economic reforms, as well as the over the sustainability of the country’s sovereign debt pile, which is now projected to hit 200 percent of GDP.

The German Chancellor, Angela Merkel, only sanctioned a new Greek deal earlier this month on the condition that the IMF takes part.

#4 Italy is going down the exact same path as Greece, but Italy is going to be a much larger problem for Europe because it has a far, far larger economy.  This week, we learned that youth unemployment in Italy has reached a 38-year high of 44 percent, and Italy’s debt to GDP ratio has now hit 135 percent.

#5 The Canadian economy has officially entered a new recession.  This is something that was not supposed to happen.

#6 The price of oil plummeted close to 20 percent during the month of July.  It was the worst month for the price of oil that we have seen since October 2008, which just happened to be during the height of the last financial crisis.

#7 Commodities just had their worst month in almost four years.  As I have written about previously, we witnessed a collapse in commodity prices just before the stock market crash of 2008 too.

#8 Thanks to Barack Obama, the U.S. coal industry is imploding, and some of the largest coal producers in the entire country have just announced that they are declaring bankruptcy…

On Thursday, Bloomberg reported that the biggest American producer of coking coal, Alpha Natural Resources, could file for bankruptcy as soon as Monday.

Competitor Walter Energy filed for bankruptcy earlier this month, and several others have done the same this year.

#9 For the month of July, the Shanghai Composite Index was down 13.4 percent.  Despite unprecedented government intervention to prop up the market, it was the worst month for Chinese stocks since October 2009.

#10 A major red flag that a recession in the United States is fast approaching is the fact that Exxon Mobile just announced their worst earnings for a single quarter since 2009.  Compared to the same time period one year ago, Exxon Mobile’s earnings were down 51 percent.

#11 Chevron is another oil giant that has seen earnings plunge.  In the second quarter of this year, Chevron’s earnings were down an eye-popping 90 percent from a year ago.

And in this list I didn’t even mention the economic chaos that is happening down in South America.  For full coverage of that, please see my previous article entitled “The South American Financial Crisis Of 2015“.

To a certain extent, I can understand why most Americans are not alarmed about the months ahead.  The relative stability of the past several years has lulled most of us into a false sense of security, and the mainstream media is assuring everyone that everything is going to be just fine and that brighter days are ahead.  At this point, many believe that it is patently absurd to suggest that we could see an economic collapse in 2015.  But of course even though the signs were glaringly apparent, very few of us anticipated the financial crisis of 2008 either.

A few weeks ago, I authored a piece entitled “The Last Days Of ‘Normal Life’ In America“, and I stand by every single word of that article.  I truly believe that the era of debt-fueled prosperity that we have been enjoying for so long is coming to an end, and our standard of living will never again get back to this level.

Just yesterday, I had the chance to go over and stock up on some emergency supplies at a dollar store.  It always astounds me what you can still buy for a dollar.  The combined cost of raw materials, manufacturing, packaging, shipping and retailing most of these items shouldn’t be less than a dollar, but thanks to having the reserve currency of the world we are still able to go to these big box stores and fill up our carts with lots and lots of extremely inexpensive merchandise.

Unfortunately, this massively inflated standard of living is going to come crashing to a halt.  This next financial crisis is going to destroy the system that is currently producing such comfortable lifestyles for the vast majority of us, and that will be an extremely painful experience.

So enjoy this summer for as long as it lasts.  Even though August threatens to be pivotal, it is going to be nothing compared to what will follow.

Fall and winter are coming.

Prepare while there is still time to do so.

What In The World Just Happened To The New York Stock Exchange?

New York Stock Exchange - Public DomainDo you believe that the New York Stock Exchange shut down because of a “technical glitch” on Wednesday?  At 11:32 AM on Wednesday morning, trading on the New York Stock Exchange was halted due to “internal technical issues”, and it did not resume until 3:10 PM.  Officials insist that there is no evidence that a cyberattack caused the technical problems even though hactivists had hinted that something may happen the night before.  Adding to the suspicion is the fact that United Airlines and the Wall Street Journal also experienced very serious “technical glitches” on Wednesday.  Others found it very curious that trading on the NYSE was halted just after Chinese stocks had absolutely plummeted the night before.  In fact, Hong Kong’s Hang Seng Index experienced the largest one day decline that we have witnessed since November 2008.  So is there more going on here than meets the eye?

Overall, the Dow was down 261 points on Wednesday, and the Dow and the S&P 500 both closed below their 200 day moving averages.  Iron ore had its biggest daily price drop ever, and the price of oil continued to decline.  But it was the stunning shut down of the New York Stock Exchange that made headlines all over the world…

The New York Stock Exchange, United Airlines and the Wall Street Journal have all fallen victim to a series of massive technical glitches within hours of each other.

NYSE halted all trading for ‘technical reasons’ at 11:32am and only reopened at 3:10pm – but says the problem is an internal one and not the result of a cyberattack.

It comes as tens of thousands of United Airlines passengers were stranded at U.S. airports on Wednesday morning after all of the carrier’s flights were grounded nationwide due to a computer system glitch.

The Wall Street Journal was also left unable to publish after its systems came under attack and has been forced to switch to an alternative site design.

In response to the shut down, the following photo began circulating on Twitter…

But was it really just a “technical glitch”?

Of course they probably would never admit it publicly if it was a cyberattack.  We live at a time when the authorities are much more concerned with keeping everyone calm than they are about telling us the truth.  So in the end all we can really do is speculate about what really happened.

But what we do know is that the stock market crash in China got even worse the night before this shutdown.  The Shanghai Composite Index and the Hang Seng Index both declined by almost six percent overnight.  Overall, the Shanghai Composite Index is now down by more than 30 percent in less than a month, and the Chinese version of the NASDAQ is down by more than 40 percent…

In just three weeks, stocks listed on mainland China’s most prominent exchange have fallen by more than 30% from their seven-year highs. The even more speculative ChiNext Index has lost 42% of its value over the 21 days.

Government regulators have now banned, for six months, Chinese executives from selling stock in their own companies. This is only one of a number moves made by panicked officials.

At this point, trading for approximately 45 percent of all stocks on the Shanghai and Shenzhen exchanges has been suspended.  So as a result the selling has bled over to the Hang Seng Index in Hong Kong, and this has caused tremendous chaos…

Hong Kong’s benchmark stock gauge plunged the most since the global financial crisis as an equity rout in mainland China rippled across Asia.

The Hang Seng Index fell 5.8 percent to 23,516.56 at the close today, the biggest drop since November 2008, after slumping as much as 8.6 percent.

Even though the Chinese have been trying all sorts of crazy things to stop the crash, nothing has worked.  Instead, the selling restrictions have only seemed to fuel the panic even more…

“Investors are disappointed and afraid that the Chinese policy makers lost control of the market,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “With no end in sight to the plunge, sentiment has turned cold. With liquidity drying up in the mainland, the Hong Kong market is being sold instead –- the only thing it can do is just quietly take the storm.”

Meanwhile, things over in Europe have become more ominous as well.  As I wrote about yesterday, EU officials have declared this week to be “the final deadline” for making a deal with Greece.  On Wednesday, Greece applied for a new three year emergency loan, and European officials have said that they will consider it…

A race to save Greece from bankruptcy and keep it in the euro gathered pace on Wednesday when Athens formally applied for a three-year loan and European authorities launched an accelerated review of the request.

Greek Prime Minister Alexis Tsipras called in a speech to the European Parliament for a fair deal, acknowledging Greece’s historic responsibility for its plight, after EU leaders gave him five days to come up with convincing reforms.

The government submitted a request to the European Stability Mechanism bailout fund to lend an unspecified amount “to meet Greece’s debt obligations and to ensure stability of the financial system”. It promised to begin implementing tax and pension measures sought by creditors as early as Monday.

But there is still a tremendous amount of skepticism about whether a deal can be reached.  The Greeks want debt relief, but the Germans have completely ruled out any sort of a debt haircut.  Most of the rest of the EU nations are siding with the Germans, and unless the Greek government caves in at the last moment it appears that a “Grexit” is quite likely.

For most people, the events of 2008 have long since faded from their memories.  After years of soaring stock prices, many in the financial world have become extremely comfortable.  But as we are seeing in China, what goes up must eventually come down.

And the shut down of the New York Stock Exchange today should be a huge wake up call for all of us.  We have become extraordinarily dependent on computers and technology, and this makes us exceedingly vulnerable.  Someday, we might just experience a cyberattack that causes a tremendous amount of permanent damage that cannot be undone.

What will we do then?

Our world is becoming increasingly unstable, and events are beginning to accelerate as we enter the second half of 2015.

So what comes next?  Please feel free to share what you think by posting a comment below…

European Stocks, Chinese Stocks And Commodities Are All Crashing – Are U.S. Stocks Next?

European Stock Market Crash - Public DomainA global stock market crash has begun.  European stocks are crashing, Chinese stocks are crashing, and commodities are crashing.  And guess what?  All of those things happened before U.S. stocks crashed in the fall of 2008 too.  In so many ways, it seems like we are watching a replay of the financial crisis of 2008, but this time around the world is in far worse shape financially.  Global debt levels are at an all-time high, the 75 trillion dollar global shadow banking system could implode at any time, and there are hundreds of trillions of dollars in derivatives that threaten to wipe out major banks all over the planet.  The last major worldwide financial crash was almost seven years ago, and very little has been done since that time to prepare for the next one.  If global markets do not calm down, we could see carnage in the months ahead that is absolutely unprecedented.

For months, European authorities have been promising us that a “Grexit” is already “priced in” to the markets and that any “contagion” from the Greek crisis will be “contained”.  Of course everyone knew that was just a smokescreen.  Just in the past couple of days since the Greek “no” vote, European stocks have already been crashing.  The following comes from Zero Hedge…

Does this look contained to you?

Portugal, Spain, and Italy all collapsing…

European Stocks Crashing - Zero Hedge

As I mentioned at the top of this article, European stocks started crashing well before U.S. stocks started crashing during the last financial crisis.  If you doubt this, just look at this chart, and this chart and this chart.

Will the same thing happen again this time?

And just like I have warned repeatedly, European bond yields have started to soar.  When bond yields go up, bond prices go down, so many bond investors are losing a tremendous amount of money right now.  Here is more from Zero Hedge…

Who’s next?

European bond risk is anything but “contained” as GGB 10Y Yields top 18%…

European Bond Yields - Zero Hedge

If there is not a last minute deal between Greece and her creditors, what we have witnessed so far in the bond markets will just be the tip of the iceberg.  In the months ahead, we could witness a bond crash unlike anything that we have ever seen in all of history.  Just consider what Egon von Greyerz recently told Eric King…

There is no liquidity in this market and this is where we will soon see a problem. We will see the bond market totally seizing up in the next few months. Eric, people simply don’t understand that this is a much bigger problem than Greece.

So we are talking about a worldwide problem, not just a Greek problem. The majority of the $100 trillion bond market is worthless, and of course a ticking time-bomb of over $1 quadrillion worth of derivatives is linked to that. This means that, sadly, we are heading into a major contagion that will lead to financial catastrophe for the world. This will also lead to an implosion of all bubble assets across the globe.

Hmm – there is that word “derivatives” again.

It is funny how that keeps popping up.

As things unravel over in Europe, a lot of desperate Europeans are feverishly purchasing physical gold.  The following comes from Bloomberg…

European investors are increasing purchases of gold as Greece’s turmoil boosts the appeal for an alternative to the euro.

Demand from Greek customers for Sovereign gold coins was double the five-month average in June, the U.K. Royal Mint said in an e-mailed statement. CoinInvest.com, an online retailer, said sales on Saturday and Sunday were the highest since Cyprus limited cash withdrawals in 2013, driven by a jump in German, French and Greek buyers.

Investors are searching for a safe haven after Greece imposed capital controls, closed banks and stopped selling gold coins to the public until at least July 6.

Meanwhile, Chinese stocks have continued to fall.  Overall, Chinese stocks have fallen 27 percent since the peak, and a whopping 3.2 trillion dollars of “paper wealth” has been wiped out in China in just the last three weeks.

At this point things are so bad that about one-fourth of all stocks in China have already suspended trading according to CNN…

The turmoil in China’s stock market is so bad that some companies are calling it quits.

Over 700 Chinese companies have halted trading to “self preserve,” according to the state media. That means about a quarter of the companies listed on China’s two big exchanges — the Shanghai and Shenzhen — are no longer trading.

Desperate measures are being employed to try to stop the stock market crash in China.  For example, over the weekend an alliance of securities brokerages pledged to invest “at least 120 billion yuan” in order to stabilize stock prices…

China’s top 21 securities brokerages said on Saturday they would collectively invest at least 120 billion yuan ($19.3 billion) to help stabilize the country’s stock markets after a slump of nearly 30 percent since mid-June. In addition, 57 Chinese mutual funds are reportedly investing 2.2 billion yuan in stock funds.

The Chinese central bank has gotten involved as well.  In fact, the People’s Bank of China has taken the dramatic step of actually directly loaning money to brokerages…

In an extraordinary move, the People’s Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this “liquidity assistance” will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.

The dramatic intervention marks the first time funds from the central bank have been directed anywhere other than the banks, signalling serious concern from authorities about the crisis.

In addition, the Chinese government has taken the following steps to intervene…

-All short selling of stocks has been banned.

-China’s national social security fund has been banned from selling stocks, but they can continue to buy stocks.

-Local media has been banned from using the terms “equity disaster” and “rescue the market” in their news reports.

But despite everything that you just read, Chinese stocks have still been falling.

Meanwhile, global commodity prices are crashing.  Just check out this chart.  This is also something that happened before U.S. stocks crashed back in 2008.

Thankfully, U.S. stocks have not started crashing yet.  But it should be noted that the “smart money” in the United States has been selling stocks like crazy since the “no” vote in the Greek referendum.  And if the patterns that we witnessed seven years ago hold up, it is just a matter of time before we experience a stock market crash too.

Incredibly, there are a lot of people out there that very strongly believe that everything is going to be just fine.  They have tremendous faith in the central bankers and in our political leaders, and they are assuring all the rest of us that there is no possible way that the global financial system could be brought down again.

I truly wish that they were right.  If everything was going to be just fine, instead of writing about the coming economic collapse I could write about sports or do a blog dedicated to LOLcats.  But of course the truth is that the “hopetimists” are dead wrong.

A great shaking is coming to our world, and life as we know it is about to change in a major way.

Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?

Question Button - Public DomainThe second largest stock market in the entire world is collapsing right in front of our eyes.  Since hitting a peak in June, the most important Chinese stock market index has plummeted by well over 20 percent, and more than 3 trillion dollars of “paper wealth” has been wiped out.  Of course the Shanghai Composite Index is still way above the level it was sitting at exactly one year ago, but what is so disturbing about this current crash is that it is so similar to what we witnessed just prior to the great financial crisis of 2008 in the United States.  From October 2006 to October 2007, the Shanghai Composite Index more than tripled in value.  It was the greatest stock market surge in Chinese history.  But after hitting a peak, it began to fall dramatically.  From October 2007 to October 2008, the Shanghai Composite Index absolutely crashed.  In the end, more than two-thirds of all wealth in the market was completely wiped out.  You can see all of this on a chart that you can find right here.  What makes this so important to U.S. investors is the fact that Chinese stocks started crashing well before U.S. stocks started crashing during the last financial crisis, and now it is happening again.  Is this yet another sign that a U.S. stock market crash is imminent?

Over the past several months, I have been trying to hammer home the comparisons between what we are experiencing right now and the lead up to the U.S. financial crisis in the second half of 2008.  Today, I want to share with you an excerpt from a New York Times article that was published in April 2008.  At that time, the Chinese stock market crash was already well underway, but U.S. stocks were still in great shape…

The Shanghai composite index has plunged 45 percent from its high, reached last October. The first quarter of this year, which ended Monday with a huge sell-off, was the worst ever for the market.

Suddenly, millions of small investors who were crowding into brokerage houses, spending the entire day there playing cards, trading stocks, eating noodles and cheering on the markets with other day traders and retirees, are feeling depressed and angry.

This sounds almost exactly like what is happening in China right now.  First we witnessed a ridiculous Chinese stock market bubble form, and now we are watching a nightmarish sell off take place.  This next excerpt is from a Reuters article that was just published…

Shanghai’s benchmark share index crashed below 4,000 points for the first time since April – a key support level that analysts said had been seen as a line in the sand that Beijing had to defend, below which more conservative investors would start ejecting from their leveraged positions, widening the rout.

Chinese markets, which had risen as much as 110 percent from November to a peak in June, have collapsed at an incredibly rapid pace in since June 12, losing more than 20 percent in jaw-dropping volatility as money surges in and out of the market.

That drop has wiped out nearly $3 trillion in market capitalization, more than the GDP of Brazil.

Did you catch that last part?

The amount of wealth that has been wiped out during this Chinese stock market crash is already greater than the entire yearly GDP of Brazil.

To me, that is absolutely incredible.

And now that the global financial system is more interconnected than ever, what goes on over in China has a greater impact on the rest of the globe than ever before.  Today, China has the largest economy on the planet on a purchasing power basis, and the Chinese stock market “is the second largest in the world in terms of market capitalization”…

Just as in 1929, flighty retail investors make up the bulk of China’s stock market and, just as in 1929 in the U.S., they have heavily margined their accounts. The Financial Times puts the number of retail investors in the Chinese stock market at 80 to 90 percent of the total market. Retail investors, unlike sophisticated institutional investors, are prone to panic selling, which explains the wild intraday swings in the Shanghai Composite over the past week.

Last night, the Shanghai Composite broke a key technical support level, closing below 4,000 at 3,912.77. The index is now down 24 percent since it peaked earlier this month and has wiped out more than $2.4 trillion in value. China’s stock market is the second largest in the world in terms of market capitalization, with the U.S. ranking number one.

Making world markets even more worried about the situation in China, its regulators are showing a similar brand of leadership as Mario Draghi. After previously pledging to trim back risky margin lending, they have now done a complete flip flop and are permitting individual brokerage firms to avoid selling out accounts that miss margin calls by setting their own guidelines on the amount of collateral needed.

I know that a lot of Americans don’t really care about what happens over in Asia, but when the second largest stock market in the entire world crashes, it is a very big deal.

The great financial crisis of 2015 has now begun, and it is just going to get much, much worse.  On Thursday, Ron Paul declared that “the day of reckoning is at hand“, and I agree with him.

So what comes next?

The following is what Phoenix Capital Research is anticipating…

By the time it’s all over, I expect:

1)   Numerous emerging market countries to default and most emerging market stocks to lose 50% of their value.

2)   The Euro to break below parity before the Eurozone is broken up (eventually some new version of the Euro to be introduced and remain below parity with the US Dollar).

3)   Japan to have defaulted and very likely enter hyperinflation.

4)   US stocks to lose at least 50% of their value and possibly fall as far as 400 on the S&P 500.

5)   Numerous “bail-ins” in which deposits are frozen and used to prop up insolvent banks.

I tend to agree with most of that. I don’t agree that the euro is going to go away, but I do agree that the eurozone is going to break up and be reconstituted in a new form eventually.  And yes, we are going to see tremendous inflation all over the world down the road, but I wouldn’t say that it is imminent in Japan or anywhere else.  But overall, I think that is a pretty good list.

So what do you think is coming?  Please feel free to join the discussion by posting a comment below…

Signs Of Financial Turmoil In Europe, China And The United States

Earth In Peril - Public DomainAs we move toward the second half of 2015, signs of financial turmoil are appearing all over the globe.  In Greece, a full blown bank run is happening right now.  Approximately 2 billion euros were pulled out of Greek banks in just the past three days, Barclays says that capital controls are “imminent” unless a debt deal is struck, and there are reports that preparations are being made for a “bank holiday” in Greece.  Meanwhile, Chinese stocks are absolutely crashing.  The Shanghai Composite Index was down more than 13 percent this week alone.  That was the largest one week decline since the collapse of Lehman Brothers.  In the U.S., stocks aren’t crashing yet, but we just witnessed one of the largest one week outflows of capital from the bond markets that we have ever witnessed.  Slowly but surely, we are starting to see the smart money head for the exits.  As one Swedish fund manager put it recently, everyone wants “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued“.

I don’t think that most people understand how serious things have gotten already.  In Greece, so much money has been pulled out of the banks that the European Central Bank admits that Greek banks may not be able to open on Monday…

The European Central Bank told a meeting of euro zone finance ministers on Thursday that it was not sure if Greek banks, which have been suffering large daily deposit outflows, would be able to open on Monday, officials with knowledge of the talks said.

Greek savers have withdrawn about 2 billion euros from banks over the past three days, with outflows accelerating rapidly since talks between the government and its creditors collapsed at the weekend, banking sources told Reuters.

All over social media, people are sharing photos of long lines at Greek ATMs as ordinary citizens rush to get their cash out of the troubled banks.  Here is one example…

And if there is no debt deal by the end of this month, the Greek debt crisis is going to totally spin out of control and financial chaos will begin to erupt all over Europe.  But instead of trying to be reasonable, EU president Donald Tusk “has delivered an ultimatum to Greece”, and it almost appears as if EU officials are more concerned about winning a power struggle than they are about averting financial catastrophe…

EU president Donald Tusk has delivered an ultimatum to Greece, claiming the country must ‘accept an offer or default’ at an emergency summit set for Monday – in a last-ditch effort to stop the debt-stricken nation crashing out of the euro.

‘We are close to the point where the Greek government will have to choose between accepting what I believe is a good offer of continued support or to head towards default,’ Mr Tusk said today.

His comments come as Greek Prime Minister Alexis Tsipras warned that his country’s exit from the eurozone would trigger the collapse of the single currency.

‘The famous Grexit cannot be an option either for the Greeks or the European Union,’ he said in an Austrian newspaper interview.

‘This would be an irreversible step, it would be the beginning of the end of the eurozone.’

While all of this has been going on, the obscene stock market bubble in China has started to implode.  Just check out the following numbers from Zero Hedge…

As the carnage began last night in China we noted the extreme levels of volatility the major indices had experienced in recent weeks. By the close, things were ugly with the broad Shanghai Composite down a stunning 13.3% on the week – the most since Lehman in 2008 (with Shenzhen slightly better at down 12.8% and CHINEXT down a record-breaking 14.99%).

Under normal circumstances, numbers like these would be reason for a full-blown financial panic over in Asia.  But these are not normal times.  Even with these losses, stock prices in China are still massively overinflated.  For example, USA Today is reporting that the median stock over in China is “trading at 95 times earnings”…

Margin debt in China has soared to a record $363 billion, according to Bloomberg, and the median stock in mainland China is now trading at 95 times earnings, which even tops the price-to-earnings multiple of 68 back at the 2007 peak.

That is absolutely ridiculous.  When a stock is trading at 25 or 30 times earnings it is overpriced.  So these numbers that are coming out of China are beyond crazy, and what this means is that Chinese stocks have much, much farther to fall before they get back to any semblance of reality.

Meanwhile, in the U.S. money is flowing out of bonds at a staggering pace.  The following quote originally comes from Bank of America…

“High grade credit funds suffered their biggest outflow this year, and double the previous week (and also the biggest since June 2013). High yield outflows also jumped to $1.1bn, the biggest since the start of the year. However, government bond funds suffered the most amid the recent spike in volatility, with outflows surging to the highest weekly number on record ($2.7bn). This brings the total outflow from fixed income funds to almost $6bn over the last week, the highest since the Taper Tantrum and the third highest outflow ever.”

What this means is that big trouble is brewing in the bond markets.  This is something that I warned about in my previous article entitled “Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode“.

For the moment, U.S. stocks are doing fine.  But just about everyone can see that we in a massive financial bubble that could burst at any time.  Presidential candidate Donald Trump says that what we are witnessing is a “big fat economic and financial bubble like you’ve never seen before”…

Yesterday during an interview on MSNBC, presidential candidate Donald Trump said he has some big names in mind for the Treasury secretary if he wins the White House. “I’d like guys like Jack Welch. I like guys like Henry Kravis. I’d love to bring my friend Carl Icahn.” He also opined on the economy and the stock market, admitting that the Fed has benefited people like him but that the economy and is in a “big fat economic and financial bubble like you’ve never seen before.“

Ron Paul also believes that this financial bubble is going to end very badly.  Just check out what he told CNBC earlier this week…

Despite record highs in the market, former Rep. Ron Paul says the Fed’s easy money policies have left stocks and bonds are on the verge of a massive collapse.

“I am utterly amazed at how the Federal Reserve can play havoc with the market,” Paul said on CNBC’s “Futures Now” referring to Thursday’s surge in stocks. The S&P 500 closed less than 1 percent off its all-time high. “I look at it as being very unstable.”

In Paul’s eyes, “the fallacy of economic planning” has created such a “horrendous bubble” in the bond market that it’s only a matter of time before the bottom falls out. And when it does, it will lead to “stock market chaos.”

Yes, this financial bubble has persisted far longer than many believed possible, but all irrational bubbles eventually burst.

And you know what they say – the bigger they come the harder they fall.

When this gigantic financial bubble finally implodes, it is going to be absolutely horrifying, and the entire planet is going to be shocked by the carnage.